Suppose the government decides that a particular commodity is a luxury and decides to fix its price above the market-determined price. What implications could this policy have? What will be an ideal response? ANSWER If the government fixes the price of a commodity above the market-determined price, it will provide an incentive to sellers […]
Refer to the above table. The table gives the combinations of real disposable income and real consumption for a college student for a year. What is the value of the marginal propensity to consume? A) 0.7 B) 1 C) 0.3 D) 0 ANSWER A
Which of the following is a correct reason for stating that the United States has a fiduciary monetary system? I. Our money is convertible to a fixed amount of silver or gold. II. Our money has a predictable value. A) I only B) II only C) Both I and II D) Neither I nor II […]
Actions on the part of monetary and fiscal policy makers that are undertaken in response to some change in the overall economy are known as A) creative policy making. B) passive policy making. C) active policy making. D) nondiscretionary policy making. ANSWER C
If the government borrows to purchase goods and services, today’s consumption of government goods and services will be paid for by A) today’s taxpayers and tomorrow’s taxpayers in even shares. B) today’s taxpayers. C) future taxpayers. D) government employees. ANSWER C
Economic growth will be associated with a constant price level when A) the increase in aggregate demand is accompanied by a reduction in short-run aggregate supply. B) the increase in aggregate demand is less than the increase in long-run aggregate supply. C) the increase in aggregate demand exactly equals the increase in long-run aggregate supply. […]
Which of the following statements is true? A) If the nominal wage rate increases, the opportunity cost of current consumption decreases. B) If the unemployment rate increases, the opportunity cost of current consumption decreases. C) If the real interest rate increases, the opportunity cost of current consumption increases. D) If the real wage rate increases, […]
According to Keynes, the “stickiness” of wage rates could best be explained by A) short-term labor contracts. B) minimum wage laws. C) unions and long-term labor contracts. D) government interference. ANSWER C
In the extreme case of a complete crowding-out effect A) an increase in interest rates will stimulate investment spending. B) an increase in government spending will not increase aggregate demand. C) an increase in tax rates will stimulate work effort. D) an increase in government spending will stimulate investment spending. ANSWER B
Which of the following statements is true? A) Countries with lower investment in research and development (R&D) are likely to have higher standards of living. B) The Industrial Revolution started in the United States and spread to other parts of the world. C) The Industrial Revolution started in South America and spread to other parts […]
